Best Defensive Stocks

Interested in stocks but want to play it safe? Then consider buying into these companies, which were carefully chosen for their relatively low risk.

Defensive stocks are large businesses—generally banks, utilities and food companies— that tend to make money in both good times and bad. The stocks listed on this table all have market caps greater than $1 billion, debt ratings of A+ or better from rating agency Standard & Poor’s and dividend yields of at least 2%. Furthermore, they posted returns on equity of more than 12% and had low betas (less than 1.0), so they are less volatile than the equities market in general.

These are steady earners. None of them are high-growth stocks, but when bad times arrive, they won’t fall nearly as hard as, say, the latest tech stock, either. Their share prices tend to appreciate slowly, and in the meantime you can enjoy hefty dividends.

This year, all eight companies on the list are in the financial sector. That may worry those still smarting from the financials-led economic crisis, but fear not: Canadian banks have proven that they can do well even in a poor economic environment. Just look at their return on equity—every one has a double-digit ROE. They also boast attractive dividends. All but one—TD Bank—pays a yield of 4% or higher. All have a decent rating of at least A+, while three on the list have an AA- debt rating.

Still, keep in mind that concentrating your whole portfolio in one sector, such as financials, raises your risk. Be sure to spread your investments evenly across many sectors if you’re looking for a balanced portfolio.

Last year’s Defensive list did well, returning 6.9%, mostly thanks to the two utility plays on the list, which saw 30%-plus returns. The bank Buys were mostly flat or slightly negative, but with those great dividends, defensive investors still did much better than the market overall.

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Canadian Business prides itself in delivering the best investment information to our readers every year in the form of our Investor 500. This year the I-500 is available as an e-book for $3.99. In addition to our investment screens, stories and data-jammed tables, we are rating every single stock in the I-500 universe. Plus, we have chosen 20 stocks based on exclusive criteria that are rated tops in both momentum and value. We hope you find this year’s Investor 500 both interesting and profitable.